Guest Column: Dreaming of Cashing Out to Big Alcohol or Big Pharma? Time to Wake Up

During my brief time in the marijuana industry I’ve heard a lot of folks talk about their exit plans.

It seems many operate with a “one foot out the door” attitude. Many hope for a huge buyout from either the big brewers/distillers or the pharmaceutical companies.

I don’t want to shatter anyone’s dreams, but the odds of that happening anytime soon are next to zero.

I’ve been providing management consulting services as well as valuation, merger and acquisition assistance to beer, wine and spirits distributors for the last couple decades. I know the beverage alcohol world pretty well.

I’m also in the process of entering the new and exciting world of legal marijuana (thank you, Colorado!). So I’m in a good position to see whether – and how – the two industries will collide.

First, some background. Beverage alcohol is a regulated product. It should be. A can of beer is not the same as a can of peas.

The 21st Amendment to the Constitution did two things: It repealed the failed experiment of prohibition, the 18th Amendment, and it said the regulation of alcohol was solely the purview of individual states.

Although a constitutional amendment isn’t required, one would hope this same model would be used with marijuana, but that’s a rant for another day.

The feds being the feds, they are still deeply involved in both the beverage alcohol and pharmaceutical industries. All alcohol distributors must hold a federal permit to operate. To lose this is to cease to exist as a going concern. The same is true for every brewer, distiller and vintner out there. You can’t violate federal law and hold any of these licenses.

Every supplier must get federal approval for every brand label that’s out there. Yep, every single beer, wine, cider and spirits label you see has been through a federal approval process. And yes, many don’t make it for a variety of reasons: targeting kids, offensive images or text, etc.

Thus every single alcohol producer and distributor operates only with the approval of the feds, as do the pharmaceutical companies. They too produce and distribute regulated products.

Whether willingly or not, both industries are firmly lashed to the leviathan that is the federal government. That ain’t going to change. Period. Ever.

To dream that these industries – which rely on the feds for their very existence – are going to leap into the state legal marijuana world is simply wishful thinking.

They would be risking their entire existence to do so. Until and unless the federal government completely legalizes marijuana, they simply won’t be willing to accept this existential threat. Throw in the very real risk of asset seizure and any unbiased observer would have to ask, why would they even think about it?

Guess what? They won’t. Even with the possibility of a great investment return, the risk/reward situation they face will stop any of them in their tracks. The tobacco industry is no different.

In addition, I find that many in this industry have a common problem of only talking to folks like them.

My political beliefs run libertarian/conservative so I have been for the end of marijuana prohibition my entire adult life. If people want to consume marijuana, so what?

But that’s not the way a lot of folks see it. Marijuana is viewed by many Americans in a very negative light (whether rightly or not is irrelevant), despite polls showing increasing support for cannabis nationally. There’s still a big chunk of the population that thinks marijuana is a dangerous, hurtful drug that should remain illegal.

It will take a brave (or stupid) established consumer goods company of any sort to enter this industry in the near-term. The consumer backlash against their established products could be significant.

The cry that they are marketing marijuana to kids would appear in a matter of minutes. Trust me. The beverage alcohol business faces this very real assault every day.

When nonalcoholic beer was first introduced it was attacked by the neo-prohibitionists for targeting kids with “training beer.” And even though it has about the same alcohol content as orange juice, you notice it is only sold by licensed businesses.

I believe it will take at least a generation for a lot of these negative feelings to dissipate. It’s been 81 years since the repeal of alcohol prohibition and there are still more than a few folks who hold these same, very negative feelings toward it. As an industry, for at least the short-term, I think we have to accept reality as it is, not as we wish it to be.

Again, regardless of the financial upsides I don’t think alcohol, pharmaceutical, tobacco or any established national consumer products company will be giving any of us a big payday anytime soon.

That’s not to say profitable exits won’t happen. It’s just that these folks won’t be playing.

John Conlin is president of Conlin Beverage Consulting Inc., which provides management consulting services to beer, wine and spirits distributors across the country. He is also in the process of co-founding a marijuana-infused edibles company.

10 comments on “Guest Column: Dreaming of Cashing Out to Big Alcohol or Big Pharma? Time to Wake Up”

When owners of cannabis brands talk about exiting this industry through a sale of their company to a pharma/liquor/tobacco conglomerate I think they all realize that that will not occur until the Federal laws are changed.

As you said, no corporation is ever going to enter the market (thankfully) until marijuana is re-scheduled due to the many risks involved.

With more and more politicians joining the pro-cannabis movement I think this will happen sooner than we all think.

I disagree. I rarely meet a 20-something that is against the use of cannabis either recreational or medical. Not to bring ageism into it, but all the people still freaking out over reefer madness will not be here forever. An exit strategy is not going to happen quickly, but it will be possible in the future.
When the younger generations interests start making a difference (spending, political, whatever) the trend will go with thee almighty dollar. I would bet big pharma will be the first industry to jump on that. Bayer would make billions on the chill pill on the shelf right next to their aspirin.

He is right on for the most part. As a former big pharma employee I can see how they were resistant to regulation early on. Then they came to realize that just going along with it all and paying the costs of it would actually play into their favor down the road. Now the cost to even get setup in many industries is so high it creates major hurdles for anyone looking to be a competitor. Meanwhile they are already set up and rolling along. Just look at the hoops they are making people jump through to get a license or even apply. Basically asking you to leap out of an airplane financially and they will let you know on the way down if you have a parachute (license approved) so to say. I assure you big pharma doesn’t work like that, they wouldn’t be required to invest in any such things PRIOR to getting any approvals in place to commence operations. Add to that the tax deductions they get and RMJ does not and they are setting it up to fail on many fronts.

The corporatist hacks are the regulators. The alcoholics already “regulate” the biz in WA and OR. CO isn’t a free state either. Hopefully Cali doesn’t fall for this tax and regulate scam disguised as legalization. Pretty sure the state govt in Cali knows that if they don’t get it right it will be overturned and they’ll look like idiots -something they don’t want to do..

Google and Facebook have been gobbling up applications at inflated prices just to shut them down. Thus big Pharma and Liquor may take this approach once they do get in the game. Things will change rapidly when marijuana goes to a schedule II. T